Journal of Purchasing & Supply Management 17 (2011) 246–255

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Journal of Purchasing & Supply Management

1478-40

doi:10.1

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Articles

Organizational buying effectiveness in supply chain context:Conceptualization and empirical assessment

Dario Miocevic n

University of Split, Faculty of Economics, Marketing Department, Matice Hrvatske 31, Split 21000, Croatia

a r t i c l e i n f o

Article history:

Received 22 December 2010

Received in revised form

1 September 2011

Accepted 3 September 2011Available online 13 September 2011

Keywords:

Purchasing performance

Organizational buying effectiveness

Theoretical triangulation

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ail address: dmiocevi@efst.hr

a b s t r a c t

Early literature considers purchasing as a supportive activity in the traditional corporate value chain

rather than as having an influence on customer value creation. This study builds on the concept that

purchasing should provide value for the direct downstream customer in the supply chain and that this

value represents the measure of its effectiveness. By employing theoretical triangulation, early

organizational effectiveness literature provided a solid foundation for the development of the concept

of organizational buying effectiveness (OBE). This study investigates the measurement properties and

external validity of the OBE concept. The findings are based on a survey of 123 large and medium

manufacturing firms in Croatia. The OBE scale exhibits sound metric properties and a satisfactory level

of external validity, thereby confirming the plausibility of theoretical triangulation. Further, the

theoretical and managerial implications for constituent fields, the study’s limitations, and suggestions

for further research are discussed.

& 2011 Elsevier Ltd. All rights reserved.

1. Introduction

Supply chain management has become a field of diversescholarly approaches. Supply chain success depends on the abilityto integrate the many goals and strategies of its member compa-nies. Integrative efforts are achievable by developing relation-ships with supply chain members. These efforts justify thevalorization of both the upstream and downstream partners’ rolesin customer value creation. In their recent work, Esper et al.(2010) warn that successful customer value creation requires anextensive integration between supply and demand-driven pro-cesses. Value is a core marketing concept and is considered adriver of customer satisfaction (Woodruff, 1997) and repurchaseintention (Sweeney et al., 1997). Consequently, the strategic goalof a supply chain must be customer value creation. Value is anactively researched issue, particularly in the business-to-business(B2B) marketing and purchasing fields (Eggert and Ulaga, 2002;Lapierre, 2000; Lilien et al., 2010; Ulaga and Eggert, 2006; Walterand Ritter, 2003). When assessing the nature of customer value, afundamental question must be answered: what are the key drivingmechanisms behind customer value creation in a supply chain?

Earlier studies position purchasing merely as a secondary andsupportive service activity within the traditional corporate valuechain (Leenders et al., 1994). However, other theoretical approaches

ll rights reserved.

consider purchasing a strategic function that adds value for custo-mers (Dumond, 1994; Lindgreen and Wynstra, 2005; Rozemeijer,2008) and secures a sustainable competitive advantage for the firm(Mol, 2003). The literature reveals that most of the purchasingperformance models achieve efficiency goals and focus on financialoutcomes by employing accounting principles (e.g., total purchasingexpense, lower inventory costs, and higher inventory turnover).Efficiency is certainly an important purchasing issue; however, itdoes not clarify the value-added role of purchasing in a supplychain. In analyzing the evolution of purchasing orientation, VanWeele (2010) noted that a firm’s ultimate goal is to integrate itssupply chain in order to achieve customer satisfaction; this per-spective embraces the effective dimension of purchasing. Hence, thegoal of effective purchasing is to provide value for the supply chain’sdirect downstream customers. Thus, the primary research goalof this paper is to challenge the view of purchasing as asecondary activity in the corporate value chain that has no strategicrelevance for the contemporary firm (Ramsay, 2001; Ramsay andCroom, 2008).

Since the early 1970s, marketing scholars have shown a growinginterest in the area of organizational buying behavior (OBB) as ameans of studying firms’ purchasing processes in a broader scope(Sheth, 1973; Webster and Wind, 1972). Value research in organiza-tional buying remains insufficient, both conceptually and empirically,and therefore yields substantial research opportunities. Accordingly,this study introduces the organizational buying effectiveness (OBE)concept. The OBE metric is shaped by three crucial dimensions thathave a profound impact on value creation for direct downstream

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255 247

customers: value-oriented purchasing, lateral involvement, and pur-chasing-related information sharing.

OBE is a new concept, although researchers have exploredsimilar concepts: they have studied purchasing efficiency (Rosslerand Hirsz, 1996), purchasing effectiveness (Janda and Seshardri,2001), purchasing efficacy (Baier et al., 2008), and buying centervalue (Hult et al., 2007). However, these studies have investigatedonly certain aspects of purchasing effectiveness. Sheth et al.(2009) suggest that, while firms are becoming ‘‘solution-oriented,’’ the purchasing function must become customer-centricand align with the firm’s marketing processes. By this line ofreasoning, purchasing must ensure the value stream throughoutthe supply chain. Hence, value creation becomes the ultimate goalof the entire supply chain wherein purchasing processes act asvalue nodes.

In order to address its research goal, this paper is structured inthe following manner. First, the distinction between purchasingefficiency and effectiveness properties is discussed. Next, theconceptualization issues of the OBE construct and researchpropositions are outlined. Thereafter, the methodology isdescribed, including operational definitions and essential analy-tical issues. Subsequently, the findings concerning measurementproperties and the structural model are enumerated. This isfollowed by a discussion of the research findings and theirtheoretical and managerial implications. Finally, the limitationsand suggestions for further research are presented.

2. Purchasing efficiency and the effectiveness dichotomy

Some purchasing researchers have considered efficiency to beequivalent to performance (e.g., Giunipero and Brewer, 1993);thus, the more efficient purchasing is, the lower the total cost ofownership and greater the economic value transmitted to thecustomer. Apart from this economic perspective on purchasing,Rossler and Hirsz (1996) propose a customer-oriented purchasingperformance that incorporates a wider set of dimensions, includ-ing communication, responsiveness, and customer concerns.Speakman et al. (1999) warn that, apart from lowering the totalcost of purchasing, other metrics are useful in measuring pur-chasing performance. Some organizational researchers proposethe simultaneous observation of effectiveness and efficiency(e.g., Katz and Kahn, 1978), but effectiveness has unique goals.Van Weele (2010, p. 303) defines purchasing effectiveness ‘‘as theextent to which, by choosing a certain course of action, apreviously established goal or standard is being met.’’ Accord-ingly, Table 1 presents the significant differences between thesetwo concepts in terms of their relationship with purchasing.

Efficient purchasing focuses exclusively on the supply side, thegoal being to procure the highest possible economic value (samequantity¼ lower price; higher quantity¼same price). On the

Table 1Distinction between efficiency and effectiveness in orga

Distinctive dimension Efficiency

Chain orientation Upstream

Core performance

element

Economic value from procu

side

Lateral involvement

level

Purchasing managers only

Decision making Centralized

Nature of exchange Transactional

contrary, effective purchasing strives to achieve all the relevantaspects comprising customer value (economic, social, technical,and service-related). Exchange in efficient purchasing is transac-tional, as the buying organization often switches to other suppli-ers, who can offer greater economic value. Effective purchasingfollows the logic of collaboration and partnership, with the goal ofseeking strategic suppliers who are value enhancers (Moelleret al., 2006). Eventually, purchasing effectiveness is a perfor-mance measure concerned with rather intangible metrics, such assupplier relations and value procurement (measured by qualityand service; Janda and Seshardri, 2001).

3. Organizational buying effectiveness

Industrial buyers tend to organize their purchasing activitiesthrough informal groups and coalitions called ‘‘buying centers’’(Sheth, 1973; Webster and Wind, 1972), which are organizationsinvolved in the purchase of a particular product or service(Robisnon et al., 1967). An organizational buying center can beconsidered as an informally organized firm subsystem. Followingthis assertion, Speakman and Gronhaug (1993) suggest that theorganizational buying center has properties similar to those of afirm, though the latter is a superior system. The mainstreamsystems theory identifies the ongoing interaction between systemand subsystems. In this line of reasoning, Woodside (2006) arguesthat subsystems are ‘‘microworlds’’ that help researchers under-stand the implications of systems thinking in business researchand the current business reality.

For the purpose of this study, OBE is defined as the measure ofan organization’s effectiveness in achieving the outcomes ofpurchasing (i.e., customer value creation). In order to developthe conceptual foundations of OBE, a theoretical triangulation wasemployed. Theoretical triangulation is a useful tool when theoriesfrom relatively discrete disciplines fail to explain a concept(Denzin, 2006). Although ideas drawn from previous studiesprovide a useful starting point (i.e., Hult et al., 2007; Janda andSeshardri, 2001), a theoretical triangulation is necessary in orderto extend the scope of OBE’s properties.

Measuring effectiveness from the organizational configurationstandpoint has been of great interest in organizational scienceresearch (e.g., Lewin and Minton, 1986; Ostroff and Schmitt,1993). Steers (1977) argues that the ‘‘effectiveness’’ concept mustcomprise goal optimization, systems perspective, and a beha-vioral emphasis. As emphasized by Pfeffer and Salancik (1978),organizational effectiveness is the standard necessary for meetingthe needs of all internal and external groups. However, the mostappealing ideas flow from Quinn and Rohrbaugh (1983), who,following their exploratory study, propose two axes of effective-ness in their competing values model: they assert that attentionorientation (external), and participation in decision making

nizational buying.

Effectiveness

Upstream and downstream

rement Total added value for ultimate

consumer

Managers from various business

functions

Decentralized

Transvectional

Table 2Concept transformation–theoretical triangulation.

Original concepts Transformed concepts

Attention orientation (external) Value oriented purchasing

Organizational properties; Participation in decision making Level of lateral involvement in organizational purchasing task

Information processing and exchange Purchasing-related information sharing

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255248

(decentralization) are necessary to achieve a firm’s objectives,which was eventually confirmed in subsequent empirical studies(e.g., Walton and Dawson, 2001). Galbraith (1974) views theorganization as an information-processing unit. Therefore, theinformation sharing has also been recognized as the valid dimen-sion of organizational effectiveness. Table 2 presents the originaland triangulated dimensions that occur in the development of theOBE concept.

Because of systemic linkages (i.e., organizational buying cen-ters are organizational subsystems that deal with purchasing-related issues), it is suitable to triangulate three organizationaleffectiveness dimensions (i.e., external attention orientation,participation in decision making, and information sharing) inthe context of organizational buying behavior. Finally, the OBEconcept comprises three dimensions: value-oriented purchasing,lateral involvement, and purchasing-related information sharing.

4. Conceptualization of the OBE dimensions

Value has been a recent focus of marketing research (Doyle,2000; Woodruff, 1997). Lindgreen and Wynstra (2005) argue thatvalue is not only an increasingly important issue in the field ofconsumer marketing but is also relevant from the purchasing andsupply management perspectives. Eggert and Ulaga (2002, p.110)define value as a ‘‘trade-off between the multiple benefits andsacrifices of a supplier’s offering.’’ It is controversial to considervalue only in terms of its product-specific attributes (e.g., itstechnical qualities; Lapierre, 2000). In a B2B setting, value mustencompass all value dimensions relevant to business customers.Value commonly comprises economic, technical, social, andservice dimensions (Liu et al., 2005). In order to maximizepurchasing effectiveness, Moller and Torronen (2003) suggestthat suppliers must provide more value to their customers thantheir competitors do. Most value conceptualizations employ theoperational definition of value within the setting of the focalpurchasing firm (i.e., the purchasing firm’s value perception basedon business needs). However, in order to optimize effectiveness,organizational buying must implement a value-oriented approachwithin the purchasing process. Hence, the task of purchasing is toprovide all relevant aspects of value to the direct downstreamcustomer in the supply chain. In this case, purchasing strengthensthe supply chain’s value stream. In support of this contention,Lindgreen et al. (2009) find that purchasing managers in health-care organizations routinely consider the needs of their directusers (patients). The theoretical and empirical backgrounds pre-sented here indirectly relate to value orientation in purchasingand provide a useful platform for the following proposition:

Proposition 1. Higher value orientation in purchasing leads to

higher organizational buying effectiveness.

Involvement in the buying process, the crucial dimension inorganizational buying, has been thoroughly researched (e.g.,Johnston and Bonoma, 1981; Lewin and Donthu, 2005). Bucklesand Ronchetto Jr. (1996) suggest that cross-functional integration

efforts attempt to improve OBE. Lateral involvement concerns thepresence of functional departments in the buying center duringthe purchasing process (Johnston and Bonoma, 1981). The deliv-ery of valuable products and services requires multiple internalmarketing exchanges among many functional departments.The interaction of marketing with other functional departments(Kahn and Mentzer, 1998; Krohmer et al., 2002) and its role insupply chain management (Min and Mentzer, 2000) necessitate a‘‘boundaryless marketing,’’ in which all departments must adopt amarket orientation, thereby implying the necessity of valuecreation for customers. The extent of lateral involvement deter-mines which factors will influence the buying situation (Lewinand Donthu, 2005). Recent research in organizational buyingoutlines significant differences between users and buyers indecision-making and level of satisfaction (Chakraborty et al.,2007; Moon and Tikoo, 2002). Tassabehji and Moorhouse (2008)reveal that purchasing managers are narrow specialists withlimited knowledge of the procured products and services. In amore recent study, Driedonks et al. (2010) find that increasedfunctional diversity in sourcing teams leads to a higher effective-ness of supply base management. In order to meet their custo-mers’ needs, firms must encourage other functional departmentsto be more involved in the purchasing process. Theoretical andempirical evidence in this regard leads to the followingproposition:

Proposition 2. Higher lateral involvement leads to higher organiza-

tional buying effectiveness.

Several arguments support the inclusion of purchasing-relatedinformation sharing (among firms’ departments) as a dimensionof OBE. From customer’s point of view, value is a multidimen-sional concept comprising various tangible and intangible assets.These assets are most closely related to the specific informationoriginating from the departments within a firm (e.g., marketresearch, finance, production, customer service, and accounting).In order to obtain value from purchasing activity, departmentsmust exchange information regarding customer value within thefirm. In her conceptual work, Rossomme (2003) considers intra-organizational information exchange as an outcome of lateralinvolvement (e.g., information gathered by a firm’s functionaldepartments provides a more detailed understanding of custo-mers’ needs). Nevertheless, lateral involvement and informationsharing are conceptually distinct: lateral involvement does notalways imply greater information sharing within buying centers,as some members of the buying center (e.g., the gatekeepers) canbehave opportunistically and limit the information-sharingpotential (e.g., Lau et al., 2003). Higher internal purchasing-related information processing increases OBE: the information isused to define more precisely the value proposition that a firmmust procure from the supply side while keeping in mind theneeds of direct downstream customers. Thus, this line of argu-mentation leads to the following proposition:

Proposition 3. Higher purchasing-related information sharing leads

to higher organizational buying effectiveness.

Fig. 1. Higher-order OBE model. Notes: OBE—Organizational buying effectiveness;

VP—Value-oriented purchasing; LI—Lateral involvement; IS—Purchasing-related

information sharing.

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255 249

5. Method

5.1. Survey instrument, sample description, and research setting

A survey was conducted for this study through a self-adminis-tered questionnaire that contained questions derived and adaptedfrom existing literature (see Appendix A for survey items). Theitems were translated into Croatian under the supervision of anative English-speaking Business English professor in order toachieve language equivalency. First, preliminary interviews withten members of the Croatian Purchasing Association (CPA) wereconducted; eight of the interviewees were chief purchasingofficers (CPOs), and two were independent purchasing and supplychain management consultants. These interviews were designedfor analyzing the questionnaire from the perspectives of under-standability and practical topical relevance. Some questionnaireitems were then improved through modification and clarification.The second portion of the preliminary assessment comprised apilot test on a sample of 20 CPOs, who were also members of theCPA but who had not taken part in the preliminary interviews.Some items were subsequently modified and adapted.

The sample was drawn from the Croatian Central Firm RegistryDatabase and comprised medium and large Croatian manufactur-ing firms. The final sample frame consisted of 546 medium andlarge manufacturing firms. The self-administered questionnairewas mailed to each firm’s chief purchasing officer (CPO). Overall,144 questionnaires were returned, 21 were incomplete, and 26questionnaires did not reach their target address and were returned.The effective response rate was 22.5 percent (representing 123usable questionnaires), which was satisfactory (Dillman, 2007).

Next, the test for non-response bias was conducted. Non-response bias is a major problem for survey methodologies andcan compromise a study’s findings. Several tests were used tocheck for non-response bias. First, the convention of comparingthe answers of early respondents with those of late ones for allquestionnaire items was followed (Armstrong and Overton,1977). Thereafter, the final sample was split into two groupsaccording to the date of receipt. The early respondents group(who had responded within three weeks of the first mailing)comprised 60 responses, whereas the late respondents group(who had responded after the second reminder) comprised 63responses. T-tests performed on both responses indicated nostatistically significant differences. However, based on Rogelbergand Stanton’s (2007) suggestions, two additional tests for non-response bias were conducted. The observed demographic profile(defined by industry, number of employees, and yearly salesturnover) of non-respondents was not significantly different fromthat of respondents. Moreover, the responding firms exhibiteddemographic properties similar to those of the general popula-tion. These findings suggest that a non-response bias is notpresent in the sample.

5.2. Measurement operationalization

The OBE construct consists of three dimensions: value-oriented purchasing, lateral involvement, and purchasing-relatedinformation sharing. For this study, three sub-scales encompass-ing these OBE dimensions were adapted from existing literature,as shown in Appendix A.

The OBE model is operationalized as a first-order reflective andsecond-order formative construct (Type II), following the modelspecifications of Jarvis et al. (2003). The first-order dimensions ofthe second-order OBE construct are modeled as reflective, sincethe nature of the indicators explains them completely. Next, thefirst-order dimensions are formatively related to the second-orderOBE construct because they represent distinct aspects of OBE.

Hence, the combined reflective-formative operationalization ofthe OBE construct is considered to be conceptually and metho-dologically sound (Fig. 1).

This study includes two control variables that may affect OBE,namely firm size and financial resources. Firm size was measuredusing the natural logarithm of the total number of employees.Large firms have advantages that allow them to allocate morehuman resources to the purchasing function, possibly resulting inmore effective purchasing (since purchasing related activities can bedelegated among a greater number of employees). Financial mea-sures were drawn from the ‘‘Croatian annual financial reportsregistry’’. Firms with more financial resources can invest morein the development of purchasing capabilities and competencies(e.g., purchasing education and training), ultimately influencing OBE.

5.3. Analytical procedure

Because of the small sample size and sufficiently developedtheoretical background, the partial least squares (PLS) methodwas used. The PLS is a technique for estimating path modelsinvolving latent constructs observed indirectly by multiple indi-cators. Developed by Wold (1981), in order to avoid the need forlarge sample sizes, the PLS enables a simultaneous analysis of theouter (measurement) and inner (path) models. The PLS fits ourresearch setting because it can estimate models’ properties with

Table 4Intercorrelation matrix of first-order constructs.

First-order constructs Mean SD 1 2 3

Lateral involvement 6.3 0.96 0.65Information sharing 6.0 0.97 0.53 0.62Value-oriented purchasing 6.1 1.00 0.62 0.48 0.67

Note: Bold values on the diagonal represent AVE.

Table 5Multi-colinearity assessment.

Dimension VIF Weight

Lateral involvement 1.80 0.414

Purchasing-related information sharing 1.49 0.393

Value-oriented purchasing 1.64 0.401

Note: VIF—Variance inflation factor.

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255250

combined formative–reflective constructs (Chin et al., 2008).Reinartz et al. (2009) suggest that PLS must be used when thesample size is small (but larger than 100) in order to estimatemodel prediction and develop a theory. More recently, PLSmodeling has been used as an analytical strategy in several B2Band purchasing studies (Eggert and Ulaga, 2002; Jensen andKlastrup, 2008; Lee and Bellman, 2008; Ulaga and Eggert, 2006;Wagner et al., 2010b).

There are few empirical examples of modeling and estimatinghigher-order constructs through PLS in the current marketing andpurchasing literature (e.g., Bruhn et al., 2008; Wetzels et al.,2009). In order to assess the external validity of the OBEconstruct, first-order factors were summated as indicators andrelated formatively to the OBE construct (Diamantopoulos et al.,2008). The summated scales procedure facilitates the estimationof model parameters for small sample sizes (Mackenzie et al.,1998). Summated scales, which generate highly reliable and validestimates, are widely used in the social sciences (Spector, 1992).Ruiz et al. (2008) employ this procedure in order to inspect theexternal validity of their study’s service value construct.

Formative constructs do not follow traditional internal con-sistency estimations (i.e., Cronbach reliability); thus, theresearcher must examine their external validity. External validityconfirms a construct’s ability to behave as expected with relatedconstructs (Churchill and Iacobucci, 2007). The summated sec-ond-order OBE construct will be linked to subjective and objectivefirm-profitability measurements in order to assess its externalvalidity.

6. Findings

6.1. First-order measurement model

Prior to the assessment of the measurement model, all scalesunderwent the purification process of the exploratory factoranalysis. The results of this process excluded one item from thelateral involvement dimension that had significant factor loadingon the information-sharing dimension. This exclusion did notcompromise the lateral involvement’s content validity.

The measurement model comprises outer model loadingsof indicators for the first-order constructs (i.e., value-oriented

Table 3Metric properties of first-order constructs.

First-order constructs Loadings t-statistics CR AVE

Lateral involvement 0.90 0.65

OBE1 0.66 6.24

OBE2 0.85 11.13

OBE3 0.84 18.25

OBE4 0.88 17.40

OBE5 0.77 9.85

Information sharing 0.89 0.62

OBE9 0.77 11.34

OBE10 0.81 21.65

OBE11 0.87 31.36

OBE12 0.80 11.92

OBE13 0.66 6.20

Value-oriented purchasing 0.89 0.67

OBE14 0.83 12.01

OBE15 0.84 17.57

OBE16 0.80 18.07

OBE17 0.79 8.69

Notes: CR—Composite reliability, AVE—Average variance extracted.

purchasing, lateral involvement, and information sharing). All indica-tors had factor loadings higher than 0.60 (all significant at po0.001).After the initial assessment of dimensionality, the composite reliabil-ities (CRs) of all first-order constructs were above 0.89 (see Table 3).The CR’s advantage over the traditional Cronbach alpha is that the CRprovides a better estimate of the shared variance between indicators(Fornell and Larcker, 1981). By giving a stable factor structure for theconstructs, the measures exhibit a high level of dimensionality andreliability, particularly as the CRs were higher than establishedstandards (Nunnally and Bernstein, 1994).

In order to achieve convergent validity, the average varianceextracted (AVE) must exceed a threshold of 0.50 for every construct(Fornell and Larcker, 1981). Table 4 indicates that all constructs havean AVE above the critical cut-off value of 0.50 and that theirrespective CRs are greater than 0.70, as suggested by Bagozzi andYi (1988). The findings of this study confirm convergent validity,following both conventions, in that all indicators measure the latentconstruct they are intended to measure. In order to achievediscriminant validity, the squared correlation between the twoconstructs must not exceed their respective AVEs (Fornell andLarcker, 1981). The highest squared correlation was 0.38 (in thecase of lateral involvement and value-oriented purchasing), whichdoes not exceed their respective AVEs. Alternatively, Gaski andNevin (1985) suggest a test that indicates that discriminant validityexists if the correlation among the constructs does not exceed theirestimated reliability (reliabilities were above 0.89 for all constructs).In both cases, then, discriminant validity exists. Table 4 presents thecorrelation matrix between constructs as well as their estimatedAVE. Accordingly, the operationalized first-order constructs do yielddimensionality, reliability, and validity (see Tables 3 and 4 forfurther details on measurement properties).

6.2. Assessing indicator colinearity

High colinearity complicates the estimation of formativecomponents validity. If the formative indicators correlate per-fectly, the information they contain may become redundant. Inorder to achieve the formative construct’s validity, the researchermust inspect the variance inflation factors (VIF). First, the dimen-sions of the three constructs were summated as exhibitinghigher-than-acceptable composite reliabilities. In order to assessthe VIF, multiple regression was employed, which shows that allindicators have a VIF value lower than established threshold of5–10 (see Table 5).

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255 251

6.3. Assessing external validity

The OBE’s external validity is present if the summated second-order OBE construct demonstrates a significant relationship withsubjective and objective profitability outcomes. Previous studieshave reported a significant relationship between purchasingstrategy and business performance (e.g., Gonzalez-Benito, 2007;Janda and Seshardri, 2001). Subjective profitability was measuredby asking CPOs to determine their firms’ profitability relative tothat of their major competitors (see Appendix A for questionnaireitems). Objective profitability measures were drawn from the‘‘Croatian annual financial reports registry’’. The return on invest-ment (ROI), return on assets (ROA), and return on sales (ROS)were calculated by dividing a firm’s total profit by investmentcosts, assets, and sales (respectively). Fig. 2 illustrates our findingsrelated to the external validity of OBE.

The critical bootstrap ratio (t-value) for OBE, the subjectiveprofitability link (ß¼0.643), is significant at po0.001 with theexplained variance (R2) of 0.171 in the endogenous construct. Therelationship between OBE and objective profitability is similarlysignificant (ß¼0.570, po0.001), but with a higher predictivepower (R2

¼0.352). The path model indicators are above theestablished thresholds (ß40.1, R240.1; Falk and Miller, 1992).These findings provide support for the external validity of theformative OBE construct.

With regard to the effects of the control variables, the findingssuggest that firm size has an insignificant impact on OBE.

Fig. 2. OBE’s External Validity (Struc

Therefore, firm size is not a valid predictor of a firm’s OBE(ß¼0.133, p40.05). Similarly, financial resources do not seemto have a significant impact on a firm’s OBE (ß¼0.104, p40.05).

7. Discussion and theoretical implications

The findings of this study confirm the validity of the OBEconceptualization because: (1) the metric assessment indicates thatthe OBE dimensions are distinct, (2) absence of multi-colinearityconfirms the formative validity of the OBE construct, and (3) externalvalidity of OBE, as a combined reflective-formative higher-orderconstruct, suggests that the conceptualization efforts are plausible.

The findings of structural relationships between OBE andprofitability outcomes (both subjective and objective) provideevidence for external validity: the relationship between OBE andobjective profitability outcomes is stronger than that betweenOBE and subjective profitability indicators. This significant linkwith profitability outcomes confirms that effective purchasingprocesses are a function of demand and supply integration.Accordingly, the integration of upstream (purchasing) and down-stream (marketing) processes significantly impacts business per-formance outcomes, which has already been confirmed inSmirnova et al. (2010). Purchasing efficiency could also be relatedto higher firm profitability; however, the findings of this studymake the suggestion that the OBE dimensions are the drivingmechanisms behind firm performance.

tural Model). Note: ** pr0.001.

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255252

This study reports an insignificant relationship between con-trol variables (size and resources) and OBE, thereby suggestingthat OBE is not dependent on a resource-based perspective(Wernerfelt, 1984). However, these findings may well lead tothe consideration of the capability-based approach as a method ofstudying purchasing phenomena (Eisenhardt and Martin, 2000).OBE is likely to be developed under the influence of key purchas-ing capabilities and skills (e.g., Tassabehji and Moorhouse, 2008).A recent study by Lintukangas et al. (2010) supports the sugges-tion that purchasing capabilities have a significant influence onthe status of purchasing and supply management within anorganization.

In order to make OBE implementation beneficial, the purchas-ing function must focus on the chain’s upstream and downstreamsimultaneously. In order to support this assertion, recent studiesindicate how suppliers are aware that the satisfaction of down-stream customers (those further down in the supply chain)influences their performance; however, most of them fail tocapitalize on this fact (e.g., Hillebrand and Biemans, 2011).

This is the first study to expand on the concept of purchasingeffectiveness and thus contributes to the extant literature onpurchasing performance measurement and organizational buyingbehavior. It not only explores the necessity of implementing OBEprinciples but also reveals the OBE’s contribution to a firm’sbottom-line performance. Hence, this study adds value to thefollowing theoretical domains:

(1)

Purchasing performance: Prior studies within the purchasingperformance field have indicated that efficiency is the ulti-mate outcome of purchasing performance. According to thisview, purchasing is a secondary and supportive value chainactivity with no strategic value-added for the firm (Ramsay,2001). This study assesses the organizational buying functionin terms of its effectiveness. The goal of effective organiza-tional buying is to procure inputs that will have a significantvalue-added effect for the customer (the forthcoming chainmember). Therefore, in the supply chain context, purchasingbecomes a value differentiator (Mol, 2003; Sheth et al., 2009;Van Weele, 2010). Previous research efforts successfullyindicated effectiveness issues within the field of purchasing(Janda and Seshardri, 2001), but failed to assess its role in abroader context. This study performs a more detailed inspec-tion of the properties that enhance purchasing effectivenesswithin the OBE perspective, as defined in relevant marketingliterature (i.e., by value-oriented purchasing, lateral involve-ment, and information sharing). A firm’s ability to createvalue for its downstream customers largely depends on itsability to align its internal purchasing processes. Therefore,effectiveness assumes the implementation of a marketingconcept within the purchasing function.

(2)

Organizational buying behavior: The empirical findings of thisstudy confirm the ideas of Wilson (1996) and Woodside(2006), who called for the use of a systems approach whenconducting research in the B2B and purchasing fields. Theorganizational buying center is a subsystem of the organiza-tion and the microworld as conditioned by purchasing-relatedissues. This study’s findings support the application of theo-retical concepts from other fields of business research to thepurchasing phenomenon. When earlier studies systematicallyinvestigated the phenomenology of OBE dimensions, theyunfortunately assessed these dimensions as the configurationelements of buying centers without exploring their strategicrelevance for customer value creation. In order to support thisassertion, Wilson (1996) warns of the necessity of a theore-tical transition in the field of organizational buying. In suchperspective, organizational buying must function under the

value-oriented philosophy. Only a few recent studies considerorganizational buying as a driving mechanism behind customervalue creation (Hult et al., 2007; Liu et al., 2005). By providingevidence of its positive relationship with profitability outcomes,this study confirms the OBE’s strategic role in the corporatevalue chain. In order to be effective, an organizational buyingfunction must be value-oriented, encourage higher lateralinvolvement, and support purchasing-related information shar-ing among members of the buying center.

8. Managerial implications

The findings of this study have profound implications formanagerial decision-making within the purchasing function. Theinspected dimensions have been indicated to be important con-tributors to the overall OBE and have a significant influence on afirm’s profitability. In other words, firms that implement OBEprinciples perform better. In order to achieve OBE goals, purchas-ing managers must ensure the following aspects:

(1)

Popularize the idea of value orientation in the purchasingfunction—customer value must not be the sole focus of amarketing department. In manufacturing firms, purchasedinputs are the greatest contributors to a product’s ultimatevalue. Therefore, purchasing and procurement managers mustcomply with the principles of market-oriented behavior andprocure inputs that add value to the products and servicesthey offer their customers.

(2)

Enroll specialists from other departments in the purchasingprocess—employees in various departments have unique infor-mation regarding the nature of purchased products. Enrollingspecialists from different departments would improve theeffectiveness of a firm’s purchasing function; for example,marketing specialists are familiar with the characteristics anddynamics of customer markets; thus, they could offer valuableinsight into the purchasing process by indicating what inputscould be most important to the firm’s customers.

(3)

Enhance purchasing-related information sharing—activeinformation exchanges among a firm’s functional depart-ments enhance the effectiveness of the purchasing process.Different functions have different types of specialized infor-mation on various aspects of customer value; for example, themarketing department may obtain crucial informationthrough market research tools that could make the valuecreation of purchasing processes more effective.

Buying firms divide their suppliers according to their value-added through various initiatives (e.g., supply-base reduction andsupplier portfolio management). On their part, suppliers must beaware of the purchasing principles employed by buying firms.Suppliers can benefit from knowing whether a buying firm imple-ments efficient or effective purchasing principles, and implementthe appropriate marketing strategy that creates value for them.

Purchasing managers must not concentrate all their efforts onpurchasing efficiency. Undeniably, purchasing efficiency leads tohigher financial performance but may not support value dissemi-nation within the supply chain. Therefore, purchasing must not beconsidered as only a cost reduction tool. Used as a cost reducer,purchasing will often exclude various aspects of offering that maybe valuable to their customers. Ineffective purchasing can causecustomers to switch to competitor offerings and thus indirectlyendanger a firm’s market position.

OBE is not a substitute for supply chain performance. Rather,OBE establishes a market-oriented philosophy within the pur-chasing process. In order to fully utilize the potential of

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255 253

purchasing in the supply chain, firms must be aware of thederived demand phenomenon: the demand for value in theupstream side of the chain is strongly determined by the demandfor value in the downstream side. Consequently, purchasinginevitably plays a crucial role in the process of customer valuedevelopment by connecting upstream and downstream supplychain processes.

9. Limitations and suggestions for further research

Although this study provides a substantial theoretical contri-bution, it also includes several limitations that must be addressed.

Many manufacturing firms organize their purchasing activitiesthrough buying centers. Value-oriented purchasing comprisesdimensions drawn from the value perception literature (e.g., pro-duct, service, technical, and relationship-specific dimensions), whichcould have significantly different levels of importance acrossdifferent industries. Future studies must address this contextualdifference by examining OBE specifics as they occur within variousindustries as well as those that occur in private and public procure-ment (e.g., Purchase et al., 2009). This study was conducted in thecontext of the most important material product (input) purchased.However, using a different product or service may significantly alterthe purchasing principles employed; for example, in routine buying,firms tend to focus on purchasing efficiency rather than purchasingeffectiveness principles.

Purchasing has many other features that are strategically impor-tant to the contemporary firm but that were not part of this study.Further research must focus on other strategic purchasing tasks (e.g.,supply market research, in/outsourcing, supplier negotiations, andsupplier development programs) and investigate whether they canbe incorporated within purchasing effectiveness properties. Thefindings of this study succeeded only partially in addressing thetendency of effective purchasing behavior.

The findings of this study confirm the relationship betweenOBE and profitability outcomes, thereby providing full confirma-tion of the OBE’s external validity. However, the OBE’s nomolo-gical network is far more complex than what is proposed in thisstudy. This study offers only a partial analysis; future studiesmust incorporate other performance indicators within the OBE’snomological network (e.g., customer and market share). More-over, apart from performance measures, researchers could enrich

Table A1

Measurement scales

Lateral involvement (Adapted from: Strauss, 1962; Johnston and Bonoma, 1981)

ythere is a nuisance for cooperation between various functional departments durin

yemployees from other functional departments have influence on purchasing proce

yinformation from other departments is useful during the purchasing process.

yit is very important to use information from other departments during the purcha

Information sharing (Adapted from: Fisher et al., 1997)

ythere is a belief that interdepartmental information sharing is a prerequisite for su

ythere is a tradition of good communication between departments which directly o

yinformation sharing between departments is strongly encouraged.

ymanagers of different departments/functions are expected to share information w

Value-oriented purchasing (Adapted from: Eggert and Ulaga, 2002; Liu et al., 2005)

Price that we pay to our suppliers influences the value we create for our customers.

The technical characteristics of the product we purchase from our suppliers influenc

The level of service activities we receive for the purchased product from our supplie

The relationship quality that we maintain with our suppliers influences the value w

Firm profitability (Adapted from: Min and Mentzer, 2004)

Our firm’s return on investment (ROI) was relatively higher than our competitors’.

Our firm’s return on assets (ROA) was relatively higher than our competitors’.

Our firm’s return on sales (ROS) was relatively higher than our competitors’.

Note: (R)—reverse coded.

the nomological network by including other perceptual measures(e.g., organizational buyers’ satisfaction and loyalty). The exten-sion of the nomological network would provide clearer evidenceof the OBE’s influence on value creation for customers. In additionto extending the nomological network, further research mustconcentrate on exploring the impact of purchasing issues on theselling side of the supply chain. This would reveal whether thepromise of demand and supply integration has been achieved(Esper et al., 2010).

The findings of this study confirm that purchasing has more thanjust a secondary role in the corporate value chain (by indicating apositive and significant relationship between OBE and profitability).However, one of the main limitations of this study is that it does notmeasure the actual output value of purchasing. Further researchmust take into account data from the other side of the dyad (i.e., thecustomers of the focal organization).

Separating transactional and strategic suppliers is crucial forthe buying firm, as effective value creation and deliveranceinvolves cooperation with strategic (key) suppliers (e.g., Lawsonet al., 2009; Wagner and Johnson, 2004). Based on the work ofKraljic (1983), modeling the supplier portfolio is an essentialmeans of achieving a differentiated approach to suppliers. The‘‘one size fits all’’ approach is unsuitable. Consequently, firmsmust assess their suppliers according to their value contributionto bottom-line performance.

Future studies could reveal other ways to study OBE in greaterdetail by employing a qualitative research design that wouldcontribute to the OBE’s theoretical enrichment. B2B marketingand purchasing scholars frequently apply these strategies in theirstudies (Matthyssens, 2007; Wagner et al., 2010a). An in-depthinterpretive approach could be fruitful in exploring new dimen-sions of OBE and integrating them with concepts derived frommainstream purchasing and OBB theories.

Appendix A

Questionnaire items

All scales were 7-point Likert with anchors ‘‘Strongly disagree’’and ‘‘Strongly agree’’. Prompts included (except where noted): ‘‘Inour companyy’’

See Table A1.

g the purchasing process (R).

ss.

sing process.

ccessful purchasing.

r indirectly participate in the purchasing process.

hich is essential for successful purchasing.

es the value we create for our customers

rs influences the value we create for our customers

e create for our customers.

D. Miocevic / Journal of Purchasing & Supply Management 17 (2011) 246–255254

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